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Electronic Clearing Service (ECS) is a facility of sending payment instructions electronically. The objective of ECS is to provide an alternate method of effecting bulk payment transactions which would avoid the need for issuing and handling paper instruments thereby facilitating customer service. This service is in operation in 15 Centres where clearing-houses are managed by the Reserve Bank of India (RBI) and 31 Centres where they are being managed by the State Bank of India and its associates. In total there are 66 ECS Centres in India.
• The scheme is designed for high volume transactions and to discourage low volume transactions
• ECS is further divided into ECS Credit and ECS debit.
ECS Credit is a method of payment whereby the institutions having to make a large number of payments can directly deposit the amount electronically into the bank accounts of those they need to make the payment to. The scheme covers mass payment transactions like periodic payments of salary, interest, dividends and the likes and obviates the need to prepare a large number of warrants, dispatching them by post and reconciling the payments later. Often each individual payment is of a repetitive nature and of comparatively small amount.
ECS Credit system works on the basis of one debit transaction producing a large number of credit entries. These credits or electronic payment instructions which contain details of the beneficiaries account number, amount and branch bank are communicated to the bank branches through their respective service branches for crediting the accounts of the beneficiaries either through magnetic media duly encrypted or through hard copy. Electronic clearing has been facilitated by MICR and the fact that many companies issue cheques that are payable at par at many locations (like dividend cheques). ECS credit can only be given to customers who already have accounts in banks that participate in this form of settlement. National clearing cell (NCC) are processing the transaction. The minimum number of transactions per user institution is 2500. The maximum value of any single item should not exceed 100,000 in a day at a centre. It is safe as there is no chance of the payment going off track. A deficiency is that sometimes the customer is not informed of the credit to his account by the recipient bank even though beneficiaries are to be informed of credits to their account and the nature of the credit.
ECS debit is a scheme which assists in payment of charges to utility services such as electricity, telephone companies, payment of insurance premium, loan installments etc. by customers. ECS envisages a huge number of debits resulting in a single credit simultaneously. It works on the principle of pre-authorized debit systems under which the account holders’ account is debited on the appointed date and the amounts are transferred to the utility companies.
The scheme thus facilitates the following services :
The individual transaction limit under this scheme is Rs. 50,000 (earlier it was Rs. 25,000; the amount may vary from month to month). The benefit include faster collection of bills by companies, better cash flow management and reduces the need for customers to go to collection centres/ banks to make payment. Moreover it ensures that a facility is not cut off for non- payment. Many consumers have in accepting this is giving a blanket permission to debit their account on the assumption that the bill amount is correct; if there is any error then the consumer has to spend considerable effort in getting the excess repaid. To tackle this concern, an ECS variant called ECS Utility Bills Payment RAPID (Receipts and Payments Instruments/ Documents) has been introduced in Mumbai for BEST customers. RAPID (Receipts and Payments Instruments/ Documents) is a post verification scheme. The consumer confirms the bill and the customer has the choice to pay the bill in cash or have the bank debit his account. In this the utility department prepares the bill in three parts such as :
The first part of the receipt will be returned to the customer by the collecting branch duly affixing the paid stamp. The collecting bank’s service branches required to have a personal computer attached to a MICR Reader or Encoder to enable them to capture the data in the third part of the bill which has the MICR read band. The service branch transmits the data to the National Clearing Cell (NCC). At the NCC, the accounts of the various collecting banks are debited and the account of the sponsor bank will be credited. The scheme is helpful to corporates as they get the amounts due to them on the stipulated date and is useful to customers as they are able to verify the accuracy of the billed amounts before effecting payment.